Well now. This looks like very big news.
The Financial Times reports that the European Union is considering establishing a sovereign wealth fund that could wield 100 billion euros in firepower.1
That’s a big bazooka!
But it’s not the size of this that strikes me right now.
As Darryl Kerrigan’s lawyer would say, ‘It’s the vibe!’
For 30 years, we’ve all been hammered with the same Western sentiment.
The way of the future was free trade and open markets, and minimal government intervention.
It looks to me like the intellectual pretensions are getting the flick. The gloves are coming off for a global bare knuckle dust-up…
Trump makes no bones about the fact that he bullies and blusters for American interests.
China never pretended otherwise. Now the EU wants member states to back European companies with direct equity stakes.
The Financial Times suggests that France and Germany are calling for an ‘aggressive’ industrial policy to protect European businesses from ‘unfair competition’.
It doesn’t take much imagination to see further tariffs, currency devaluations and other tactics on the table.
This could then be the legacy of Donald Trump…a global trade war where nationalism and protectionism dismantle the global system born from the collapse of the Soviet Union.
He is further undermining the US dollar, too.
Russia’s major oil producer, Rosneft, is said to be notifying customers that future contracts will be priced in euros, not US dollars.2
Why? This is a pre-emptive Russian move to get out of Donald Trump’s blast range.
This news is unlikely to go down well in Washington. Is Trump going to sanction another major oil producer or anyone who deals with it?
The sad thing is that he just might — and lead the world even further into his insane chaos.
We’ll see on that.
Regardless, we look to be entering a new era in terms of the overarching paradigm…and I’m not sure this is going to take the world into a happier place.
The downward spiral happening
Let me pause for a moment. This idea of an EU sovereign wealth fund is exactly just that for now…an idea. There’s no guarantee that it will happen.
But I’d be surprised if it didn’t. We’ve already seen inklings of this more aggressive shift in Europe.
That stems from concern around the European auto industry being conceded to China from the switch to electric vehicles.
There are just too many European jobs tied to that for the powers that be to let things slide.
Then there’s the EU regulators continually going after Google on antitrust grounds…and further calls to clamp down on the power of the big US tech stocks.
This level of antagonism can go to the level of a debate around olive oil and bourbon, of all things.
Washington’s tariffs are threatening to double the price of European olive oil for US consumers.
This looks like part of the ongoing tit-for-tat moves, after the EU slapped tariffs on American whiskey and Harley-Davidson motorcycles.
These came in response to Trump’s tariffs on European steel and aluminium.
See the downward spiral happening? This makes rational planning for any business a nightmare.
Trump’s trade war is damaging American businesses all over the country.
That’s not to say the US and the US stock market can’t weather this turmoil in the short term.
Exports are not a huge component of US GDP. And it’s US tech that’s propping up the markets for now.
Still, you can’t help but wonder if George Orwell’s vision in 1984 — of three major global blocks forming — is closer to reality than it was a few years ago.
The United States of Europe are coming
Perhaps that sounds hyperbolic. The least I think we can expect is the continued encroaching arrival of the United States of Europe (USE) around this.
The apex of this new power structure will be incoming European Central Bank chief Christine Lagarde.
Last year — as head of the IMF — she said that central banks should consider issuing a digital currency. Lagarde knows that the Chinese central bank is very close to launching its own.
This will give her the perfect pretext for something the ECB likely wanted to do anyway — abolish cash and private bank credit creation, and assume total financial control of the European Union.
Privacy and liberty will become subservient to the new supranational behemoth — and unaccountable to any national electorate.
The European Central Bank can sell it as a trade strategy to protect the average EU citizen from an imperial America and a protectionist China.
It would be no stretch for the ECB to propose funding equity purchases of European stocks as part of this new USE’s industrial and monetary policy — just as the Japanese and Swiss national banks already do.
That would leave the US Fed as the outlier — the only major central bank not to own shares directly. I don’t expect that to last the next downturn.